Term plan ownership is rising, but savings rule

Buying term plan under the Married Women’s Property Act can ring-fence the compensation from creditors

The pandemic has raised awareness about the need to have adequate life insurance. However, urban India has also grown more anxious about financial security and preparedness over the past year, owing to the Covid-19 pandemic.

These are some of the key findings of the third edition of the Max Life India Protection Quotient (IPQ) 3.0 survey, conducted jointly by Max Life Insurance Company and Kantar, an insight and consulting company.

Prashant Tripathy, managing director and chief executive officer (CEO), Max Life Insurance, says, “While the survey has observed a positive trend in urban India’s approach to financial protection over the past three editions, there’s still a long way to go.”

A closer look at the findings reveals insights that buyers can use to make informed decisions.

Term versus savings plan: The survey witnessed an increase in urban India’s level of awareness and ownership of term insurance, especially in tier 1 cities, in the wake of the pandemic. Now, 28 per cent of urban Indians own term products, compared to 24 per cent in IPQ 2.0.

However, savings plans still remain the most owned life insurance product.

Deepali Sen, founder and partner, Srujan Financial Advisers LLP, says, “Term plan makes sense for nearly everyone. But some people have the mindset: ‘What if I don’t die? Shouldn’t I get some money back?’ Such people go for term plans with a return of premium option, or for savings plans.”

Savings plans help an individual accumulate a fund for the future.

They have only a thin sliver of life cover attached to them. Sen adds, “The returns on these plans is a pittance — 4-5 per cent.”

Coverage: According to the survey, 59 per cent urban Indians feel their term cover is insufficient to safeguard the future of their family. Also, 69 per cent now consider coverage to be an important parameter when buying term insurance, as opposed to 63 per cent in IPQ 2.0. But how much is enough?

Naval Goel, CEO and founder, Policyx, says, “Have a minimum cover of 15-20 times your annual income.”

Self-employed: According to the survey, the self-employed have overtaken the salaried in term plan ownership — by 7 per cent. A self-employed person is personally liable for the debt and liabilities of his business. Hence, adequate protection for the family via a term plan becomes important.

Sen says, “When a self-employed husband buys a life insurance policy, he can buy it under the Married Women’s Property (MWP) Act. The MWP Act is a law you can use to safeguard your wife and kids’ future.”

This Act was put in place to safeguard a married woman’s property from creditors and family members.

Millennials and women: The survey shows millennials, too, are warming up to life insurance. There has been a 6 per cent jump in ownership. Goel says, “Your insurance needs to change with life stages. Start early and then evaluate your insurance needs every five years.”

Working women: Working women have become more aware regarding term insurance plans than in pre-covid times. But when it comes to ownership of term insurance, working men still lead.

There has not been much improvement in the case of non-working women.

Tripathy says, “The financial decision to buy life insurance remains with the breadwinner.”